Top Down Vs Bottom Up Franchises

With over 2,000 franchise opportunities to choose from researching
for the best opportunity can be a confusing and overwhelming task.
Before deciding which franchise is the best fit for you, it’s
important to determine which franchises are best for anyone and
truly provide a proven successful business model. While there are
many factors used in determining this, one key element I look at
is a concept I like to call “Top Down Vs Bottom Up” franchises.
While there are always exceptions to the rule I’d like to
share with you this theory on top down vs bottom up and explain
why “bottom up” franchises are generally a much safer
investment and offer that critical element of a proven successful
business model.

Top Down vs Bottom Up

When you look at the history of most successful franchises, they
almost always are the evolution of a very successful independent
business that chose to grow through franchising rather than through
opening and remotely managing corporate owned locations around
the country or globe. This is what we refer to as a bottom up franchise.
A bottom up franchise is in fact a proven business model, even
to the very first franchisee that enters the system. As a young
franchisor they may still have things to learn about selling and
supporting franchisees, national vendor contracts, national marketing
efforts, etc. but they have been striving to perfect the core business
model for years before offering it as an investment to a new franchisee.
Look at McDonalds, KFC, Subway and the countless other brands that
are among today’s largest franchise systems… They all
started as small independent businesses that operated and thrived
long before moving into franchising and offering their brand and
business model to other investors.

On the other hand we have what I call “top down” franchises
that grow their business in an almost opposite fashion. Top down
franchises are usually franchise opportunities started by franchising
experts who identify hot markets or trends in franchising and jump
in the race with their own invented brand, despite having little
or no actual experience owning and operating the actual business
which they are franchising. They know the industry is hot, they
know how to sell and support franchisees, but for lack of a better
word they are using their new franchisees as guinea pigs or beta
testers to learn how to own, operate and succeed with the core
business model. While there have been cases of top down franchises
becoming very successful for both franchisor and franchisee, more
times than not these are recipes for failure. After all, when you
buy a franchise you are supposed to be buying a proven business
model from an organization that can lead you from inception to
success. If a franchisor has no actual experience building and
operating the core business then where is the proof of a successful
business model? Who is going to teach you to be successful if they
themselves have never actually been successful with this business?

When looking at a particular franchise opportunity one key factor
I look at right away is when the business was founded vs when the
business was franchised. I like to see the business founded no
less than 3 years before it was franchised which means it had at
least 3 years to focus on the core business model before offering
the opportunity to other investors. Some experts believe this period
should be no less than 5 years. When researching a franchise you
always want to know the history of the business before it was a
franchise. Obviously the longer a franchise has been in offering
it’s opportunity, provided its franchisees are successful
the less this may matter, but so many of today’s hottest
franchises are less than 10 years old and are not the mega brand
opportunities most think of when they think franchising. One should
never discount a franchise because they are young or don’t
have hundreds of franchisees, after all, at some point the giants
like McDonalds and Subway also were young and had only a handful
of franchisees, but when exploring a young franchise take careful
consideration of whether or not it’s a top down or a bottom
up franchise system. This alone could be a big determining factor
of your chances of success or failure with your next franchise!